Weekly Ratings, Targets, Forecast Changes

This story features ALS LIMITED, and other companies. For more info SHARE ANALYSIS: ALQ

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday July 30 to Friday August 3, 2018
Total Upgrades: 8
Total Downgrades: 11
Net Ratings Breakdown: Buy 44.82%; Hold 39.63%; Sell 15.55%

The openingsweek of the August reporting season in Australia has been a rather subdued one, both in terms of results releases and of share market action.

Stockbroking analysts issued eight upgrades for individual ASX-listed stocks against eleven downgrades during the week ending on Friday, 3rd August 2018. Seven of the eight upgrades moved to Buy, with only ALS ltd's upgrade stopping at Neutral. Smaller mining and energy stocks continue to feature prominently.

Only two out of eleven downgrades sank as deeply as Sell, with perennial disappointer Ardent Leisure and high flyer Netwealth the two recipients. Ex-Amcor spin-off Orora was downgraded twice to Neutral during the week, on valuation, but the share market is not fully complicit ahead of the upcoming results release.

Positive revisions to price target remain subdued, with exception of a 10% increase for Senex Energy and a 3% gain for APA Group. The negative side carried more meat for the week, with AMP (-4%) taking the biggest blow, followed by Fortescue Metals, Janus Henderson and Breville Group.

A similar picture emerges from earnings estimates. While positive revisions for the week are quite large, there are a lot more fireworks on the flipside. The week's beneficiary of the largest increase in consensus estimates is gold miner St Barbara, followed by Sandfire Resources, Regis Resources, and OceanaGold.

The heaviest downside adjustments went to graphite miner Syrah Resources, Ardent Leisure, Alacer Gold, Fortescue Metals, Orocobre, and the still struglling AMP.

Local reporting season ramps up this week. The early warm-up act has seen more misses than beats, including from Rio Tinto, but investors would be wise not to draw any conclusions just yet as this season has only just started.

Upgrade

ALS LIMITED ((ALQ)) Upgrade to Hold from Lighten by Ord Minnett .B/H/S: 2/4/1

The AGM guidance for first half net profit of $85-90m implies a 21-28% growth rate, Ord Minnett observes. The broker had feared an earnings downgrade, particularly from the erosion of life sciences margins.

However, the chance of this has now diminished and the rating is upgraded to Hold from Lighten. Target is raised to $8.17 from $6.63. The main issues are now the degree to which pricing will recover in geochemistry and delivery on the margin recovery in life sciences.

AMCOR LIMITED ((AMC)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 4/3/0

Morgan Stanley believes Amcor's growth outlook is returning to more normal levels after a disappointing FY18. The broker expects EBIT growth of 3% as FY18 was negatively affected by rising raw material costs and challenges in the North American beverage market as well as difficult conditions in Latin America.

Most of these issues should moderate over the next 12 months. The broker does not believe the better outlook is reflected in the current valuation and upgrades to Overweight from Equal-weight. Target is raised to $15.80 from $14.80. Cautious industry view.

AMP LIMITED ((AMP)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 4/3/1

AMP has announced a number of additional expenses related to regulatory and remediation activities along with the cuts in wealth management. The company will report its first half result on August 8.

Ord Minnett believes the stock is cheap on a relative PE basis to many others that are trading above through-the-cycle valuations. Still, the broker acknowledges investors will need to be patient and hope there is not a worst-case regulatory change.

Given the recent fall in the share price the broker upgrades to Accumulate from Hold. Target is reduced to $3.90 from $4.20.

APA GROUP ((APA)) Upgrade to Buy from Neutral by Citi .B/H/S: 4/2/1

While a formal bid is yet to be made by CKI, Citi upgrades to Buy from Neutral and raises the target to $11.00 from $9.90, in line with the indicative bid price.

The broker acknowledges regulatory approvals are still inherently risky and CKI was unable to acquire Ausgrid but this is considered more likely because it was jointly bidding with the Chinese state company.

EVOLUTION MINING LIMITED ((EVN)) Upgrade to Add from Hold by Morgans .B/H/S: 2/4/2

Gold production for FY18 was close to the top of the guidance range, at a record low cost of $797/oz. Guidance is for production of 720-770,000 ounces in FY19 with a cost range of $850-900/oz.

Guidance has slightly enhanced the broker's valuation and the target is raised to $3.20 from $2.65. Rating is upgraded to Add from Hold.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/1/3

FY18 production was a record and, in isolation, FY18 could be viewed as a high point for earnings. However, Macquarie considers this overlooks the strong long-term potential.

The introduction of higher-grade satellites is expected to push costs higher in FY19 but subsequently the broker expects a rapid reversion to the norm. Rating is upgraded to Outperform from Neutral and the target reduced to $4.90 from $5.10.

SARACEN MINERAL HOLDINGS LIMITED ((SAR)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/0/1

The company has reported a strong set of drilling results with the highlights being Karari and Whirling Dervish. Whirling Dervish looks likely to repeat the success of Karari, in Macquarie's view.

Further open pit results in and around Thunderbox are expected to provide an incremental lift to production and extend mine life. The broker upgrades to Outperform from Neutral. Target is $2.20.

SENEX ENERGY LIMITED ((SXY)) Upgrade to Buy from Neutral by Citi .B/H/S: 5/1/0

Following a review of the geology surrounding the Atlas project Citi is comfortable that the company can unlock the reserves growth. The broker does not believe the share price is reflecting the extent to which Atlas reserves can increase.

Meanwhile, the infrastructure deal with Jemena and the new $150m debt facility act to de-risk Queensland CSG in terms of funding, scale and schedule. Rating is upgraded to Buy/High Risk from Neutral/High Risk. Target is raised to $0.57 from $0.45.

Downgrade

ARDENT LEISURE GROUP ((AAD)) Downgrade to Lighten from Hold by Ord Minnett .B/H/S: 2/2/1

Ord Minnett believes management is making significant improvements but not fast enough to counter the negative impact of the high levels of competition in the US. FY18 sales for Main Event are considered reasonable but a significant deceleration is observed in the later stages of the second half.

Ord Minnett believes there is a lot factored into the price and downgrades to Lighten from Hold. Target is reduced to $1.54 from $1.95.

ALACER GOLD CORP ((AQG)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 3/1/0

June quarter operations were strong, with a 20% beat on Macquarie's cost estimates. The sulphide project is set for first gold during the September quarter and the company expects the project to come in -10% below budget.

The sulphide circuit is set to transform the operating outlook while there are a number of organic development options, the broker notes. Macquarie downgrades to Neutral from Outperform, given recent strength in the share price. Target is $3.

BREVILLE GROUP LIMITED ((BRG)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/3/0

Breville is well positioned to benefit from omni-channel retailing and an increased focus on customer experience, Credit Suisse notes, but to achieve sales growth the company will need to increase share in a highly competitive market against a backdrop of weak discretionary spending.

There is also a risk of higher costs in Europe as Breville transitions to a direct supplier model, and risks from potential US tariff extensions. Ahead of the company's earnings result the broker downgrades to Neutral from Outperform. Target falls to $11.60 from $13.50.

HUB24 LIMITED ((HUB)) Downgrade to Neutral from Outperform by Credit Suisse .B/H/S: 1/1/0

Competition in the advised platform market was always going to emerge, Credit Suisse suggests, but BT Panorama's ((WBC)) price cuts came sooner and are larger than expected, followed by AMP ((AMP)) for MySuper. While the broker still sees significant growth for emerging platforms, price competition will lead to churn and margin compression.

The broker has reduced earnings forecasts for Hub24 and cut its target to $13.20 from $14.10. Downgrade to Neutral from Outperform.

INGHAMS GROUP LIMITED ((ING)) Downgrade to Neutral from Buy by Citi .B/H/S: 0/5/1

Citi expects the cost cutting program will be countered by cost inflation over the next 18 months. Feed costs are the company's largest input and, while there are some mechanisms to pass these on, the dramatic rise in feed costs is expected to produce weaker earnings growth over FY19 and FY20.

Citi lowers EPS forecasts by -7% for both years and reduces the target to $3.70 from $3.90. Rating is downgraded to Neutral from Buy. A share buyback announcement is still considered probable at the FY18 results.

JANUS HENDERSON GROUP PLC. ((JHG)) Downgrade to Neutral from Buy by Citi .B/H/S: 3/3/0

The second quarter result was only slightly worse than Citi expected and the trading multiple appears undemanding. Risks are now elevated because of a change in personnel and a deteriorating performance in Intech.

Hence the broker downgrades to Neutral from Buy and reduces the target to $43.60 from $50.35. To date the company has achieved US$107m in pre-tax synergies and appears well on track to achieve its target of over US$125m within three years. Citi does not rule out an upgrade to this target at some point but finds it hard to know when.

NETWEALTH GROUP LIMITED ((NWL)) Downgrade to Underperform from Neutral by Credit Suisse .B/H/S: 0/1/2

Competition in the advised platform market was always going to emerge, Credit Suisse suggests, but BT Panorama's ((WBC)) price cuts came sooner and are larger than expected, followed by AMP ((AMP)) for MySuper. While the broker still sees significant growth for emerging platforms, price competition will lead to churn and margin compression.

The broker has reduced earnings forecasts for Netwealth and cut its target to $7.35 from $7.90. Downgrade to Underperform from Neutral.

ORORA LIMITED ((ORA)) Downgrade to Hold from Accumulate by Ord Minnett and Downgrade to Neutral from Buy by Citi .B/H/S: 2/4/1

Ord Minnett forecasts FY18 net profit of $210m at Orora's results announcement on August 9, up 12.7% on FY17.

As the stock has reached the broker's target price, and a tougher environment is apparent in North America, Ord Minnett downgrades to Hold from Accumulate. Target price is $3.60.

The shares have outperformed the broader market over the year to date, driven by a solid performance in Australasia, lower costs and strong container board markets.

Citi expects another solid FY18 result on August 8 and guidance for further growth into FY19 but believes the recent rally in the share price has now priced this in.

Hence, the broker downgrades to Neutral from Buy. Target is $3.70.

SUPER RETAIL GROUP LIMITED ((SUL)) Downgrade to Hold from Buy by Ord Minnett .B/H/S: 2/6/0

Following a review of the investment thesis Ord Minnett downgrades to Hold from Buy. This is based on the recent share price performance, a lack of valuation support and potential upside from the company's three-year growth targets.

Target price is steady at $9. The broker forecasts FY18 underlying net profit of $137.7m, up 2.4%, when the company reports on August 21.

SUNCORP GROUP LIMITED ((SUN)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 3/4/1

Ahead of Suncorp's results on August 9, Ord Minnett has re-modelled its outlook after adjusting mark-to-market movements. With the stock now trading in line with the broker's target price the stock is downgraded to Hold from Accumulate.

Ord Minnett observes several upcoming positive catalysts for Suncorp, including the turn in the Australian commercial cycle, although to a lesser extent than Insurance Australia Group ((IAG)).

Target raised to $15.00 from $14.29.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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